The insurance regulator IRDAI may finetune the structure of pension products sold by insurers, to make them more attractive to the public.
At a meeting with insurance industry representatives last Friday, IRDAI officials voiced concerns over the low sales of the pension products, reported Moneycontrol.
“At one point, pension products used to constitute about 25% of the business of life insurers. This has now dropped to a single digit and is a matter of concern. We will see if any enabling structures can be introduced,” said a regulatory source.
During the annual review meeting of the insurance companies held in Hyderabad, IRDAI acknowledged the concerns of life insurers in this space. Pension products face tough competition from the National Pension Scheme (NPS), which has better tax incentives and investment opportunities.
A senior life insurance executive explained that the current regime has been tough and therefore, insurers are able to offer only a basic guarantee product in the pension space.
Five years ago, changes were made to pension regulations that make it mandatory for insurance companies to offer a non-zero return on the products that they offer. This is because the maturity fund from these policies would be used as retirement money by policyholders.
In addition, the regulator has insisted that annuities should be brought from the same insurer. Also, no partial withdrawals are allowed which has made it difficult to sell the policies, said the chief executive of a mid-size private life insurance company.
With the goods and services tax (GST) regime, the pension products may also get slightly expensive since the insurance sector will have to pay a new rate of 18% as against 15% earlier.
“On one hand, pension products are unable to compete with NPS; on the other hand, taxes are high. We have sought a better structure that gives us more flexibility in investments ,” said the chief investment officer of an insurance company.
Life insurers had sought a tax exemption for purchases of pension products. But, no such provision was made by the Finance Minister in his Budget announcements.